Home > Preferred provider organization
In health insurance, a preferred provider organization (or "PPO") is a managed care organization of medical doctors, hospitals, and other health care providers who have covenanted with an insurer or a third-party administrator to provide reduced rates to the insurer's or administrator's clients.The idea of a preferred provider organization is that the providers will provide the insured members of the group a substansial discount below their regularly-charged rates. This will be mutually beneficial in theory, as the insurer will be billed at a reduced rate when its insureds utilize the services of the "preferred" provider and the provider will see an increase in its business as almost all insureds in the organization will use only providers who are members. Even the insureds should benefit, as lower costs to the insurer should result in lower rates of increase in premiums.
Unlike health maintenance organizations, in which insureds who do not utilize members of the organization as their health care providers receive little or no benefit, PPO members will be reimbursed for utilization of non-preferred providers, albeit at a reduced rate which may include higher deductibles, co-payments, lower reimbursement percentages, or a combination of the above.
Other features of a preferred provider organization generally include utilization review, where employees of the insurer or administrator review the records of treatments provided to make sure that they are appropriate for the condtion being treated rather than largely or soley being performed to increase the amount of reimbursement due, a proceedure that many providers resent as second-guessing. Another near-universal feature is a pre-certification requirment, in which scheduled (non-emergency) hospital admissions and, in some instances, outpatient surgery as well, must have prior approval of the insurer and often undergo "utilization review" in advance.
The rise of PPOs was credited by some with a reduction in the rate of medical inflation in the U.S. in the 1990s. However, as most providers have become members of most of the major preferred provider organzations sponsored by major insurers and administrators, the competitive advantages outlined above have largely been reduced or almost entirely eliminated, and medical inflation in the U.S. is again advancing at several times the rate of general inflation. The aspects of utilization review and precertification are widely used even in traditional "indemnity" plans, and are widely regarded as being essentially permanent featurs of the American health care system.
